60 Minutes recently took a look at World Savings Bank, the acquisition that ultimately wounded Wachovia so badly that it had to be acquired by Wells Fargo. What was wrong with an institution for which Wachovia was willing to pay $25 billion? Well, one whistleblower claims that World Savings was engaged in fraud and predatory lending — tricking its customers into signing up for dangerous “option-arm” or (as they cheerfully called them) “pick-a-payment” loans.
Option-ARMs are so risky that they are illegal in many states — and offer payments that are so low that they don’t even cover the monthly interest. This results in a mortgage that actually grows over time.
60 Minutes’ whistleblower says that World Savings was “packaging” (their name for falsifying documents) loans in order to approve as many people as possible for risky mortgages. Their motivation was allegedly the huge fees that the bank and its mortgage brokers collected for processing each loan.
Maeve-Elyse Brown, a lawyer for a non-profit group working to save homeowners from foreclosure, says Betty Townes’ actual income was about $1,875, but that the income written on her loan application was over $4,000.
Asked who did that, Brown told Pelley, “The interviewer that’s listed is a staff person for World, for World Savings, according to the loan documents.”
“What does that tell you?” Pelley asked.
“Looks like whoever typed up this document put in the number that they thought was the right number to get the loan approved,” Brown said.
“The term was ‘packaged.’ It had to be packaged correctly when it got to the underwriter,” Bishop told Pelley.
Bishop says a story like Betty’s was common at his former office.
He says facts were manipulated on some loan documents to get past company underwriters who approved the loans. “You know, let’s not say this. Let’s delete these items that they’re probably not gonna check on. Let’s add this. Let’s just move it around.”
“Packaging the loan meant modifying [the loan]…to make sure it would pass the underwriters’ inspection?” Pelley asked.
“Correct. It was one grand wink-wink, nod-nod,” Bishop said.
60 Minutes says that World Savings’ option-arm portfolio has now lost over $36 billion.
World Savings denies that there was any fraud or irresponsible lending at the bank.
World Of Trouble [CBS]